The 4-1 decision from the High Court said the woman's employer did not induce or encourage her to participate in the sex, so the government insurer, Comcare, was not liable to compensate her.

The lower court said the woman was injured in the course of her employment and should be compensated.

The woman cannot be identified for legal reasons. She was a civil servant in her 30s when she was treated in hospital for the injury in 2007.

She and a man were having sex in her motel room when a glass light fitting above the bed fell onto her face, injuring her nose and mouth. She later suffered depression and was unable to continue working for the government.

Comcare initially approved her claim for worker's compensation but rejected it after further investigation.

An administrative tribunal agreed that her injuries were not suffered in the course of her employment, saying the government had not induced or encouraged the woman's sexual conduct.

The tribunal also found the sex was "not an ordinary incident of an overnight stay" such as showering, sleeping and eating.

Federal Court Judge John Nicholas overturned that last year, rejecting the tribunal's findings that the sex had to be condoned by the government if she were to qualify for compensation.

"If the applicant had been injured while playing a game of cards in her motel room, she would be entitled to compensation even though it could not be said that her employer induced her to engage in such activity," he wrote then.

Comcare lost its appeal to the Full Bench last December, with the three judges finding that the government's views on the woman having sex were irrelevant.

But the High Court ruled that Comcare was not liable to pay compensation. The judges did not say how much compensation had already been paid.

Comcare declined to comment on the amount, but said it was considering recovering it.

"The relevant question is: Did the employer induce or encourage the employee to engage in that activity?" a summary of the court ruling said.

The crucial facts were that the overnight stay was within the two-day period of the work trip and her employer had encouraged the woman to stay in the motel in Nowra, 100 miles south of her hometown of Sydney.

"In the absence of any suggestion that she was engaged at the time of injury in misconduct, those facts were sufficient to conclude that the injury the respondent sustained during that interval, and when at that place, was sustained in the course of her employment," Mr Gageler said.

Employment Minister Eric Abetz hailed the ruling as a victory for common sense.

"Instances such as this where an employee seeks to stretch the boundaries of entitlements are of great concern and the High Court's intervention is welcome," he said.

Comcare declined to say what effect the ruling would have on other compensation claims.

The government insurer also declined to say whether other claims in comparable circumstances were pending.

Australian National University law professor Peter Cane said that while he had not yet read the High Court's reasons, there is always "wriggle room" in any test of whether an accident happened in the course of employment.